1. Executive Summary Survey of Japanese Cross-border M&A
Cross-border M&A and Japanese Companies - Overcoming Challenges in Cross-border M&A - Insights from leading Domestic and Overseas M&A Players
Executive Summary
Survey of Japanese Cross-border M&A
April 2019
Investment Facilitation Division, Ministry of Economy, Trade and Industry

2. Report Outline (i) – Contents and purpose of survey-
In order to support cross-border M&A, an effective tool for the achievement of global-level business growth but often suggested as being highly challenging, a survey was conducted on the common challenges, etc. of Japanese companies by collecting fresh opinions from companies, taking the past efforts into account.
Past efforts
Major problems considering the past efforts
Contents, subjects and purpose of this survey
This survey was outsourced to: PwC Advisory LLC
Round table discussions on overseas PMI *
Discussed and shared difficulties they faced and well-designed efforts they made in PMI.
What is in the mind of the people who are actually involved in PMI?
What kind of challenges do they recognize?
CEOs and CFOs, etc. of overseas companies purchased by Japanese companies
Japanese representatives dispatched for PMI from parent companies
Study Group for Japanese Companies’ Cross-border M&A
* Held in the United States, the United Kingdom and Singapore
[Product]
Report of the Study Group
Nine Actions for Successful Cross-border M&A
* Both of them were released in March 2018
Challenges of Japanese companies which can only be experienced onsite were highlighted
Cross-border M&A workshops
Small group interactive workshop including group work
What kind of challenges will Japanese companies, which have started or are considering to work on cross-border M&A, face?
Officers and persons in charge of companies with high interest in cross-border M&A
(mainly companies who have started to work on M&A)
* Held in Tokyo, Osaka and Fukuoka
Focused on companies with limited experience and companies with few resources
Interviews with overseas companies with rich experience
Interviews were conducted on such matters as the well-designed efforts made in cross-border M&A, case studies thereof and challenges specific to Japanese companies
What kind of practices and well-designed efforts are made by companies with rich experience in M&A?
How are investments in Japanese companies recognized by overseas companies?
MA team of overseas companies, etc. (15 in total)
Foreign investment funds (5 in total including those which haven’t expanded their business in Japan)
* Conducted in the United States, the United Kingdom, Germany, Singapore, India and Tokyo
Informative points for Japanese companies and challenges specific to Japanese companies were explored from the difficulties faced and well-designed efforts made by overseas companies
* PMI: Post Merger Integration (management integration after merger)

3. Global management system Global management capability
Report Outline (ii) – Challenges of Japanese Companies in Cross-border M&A (overview) -
Through this survey, development of the “management capability” and “systems” which global companies should have as well as a “framework for execution of M&A” that take into account the entire M&A process were recognized as the challenges
Overview of the Challenges and Examples of the Opinions of Companies
Preparation of “frameworks” for execution of M&A that take into account the entire M&A process.
Global management system
Global management capability
Challenges of Japanese companies in cross-border M&A
Lack of “framework” to effectively promote the M&A process
Insufficient organizational structure for working on M&A
Shortage of capabilities necessary for global management which is represented by the ability to communicate one’s own strong points and strategy, etc., language ability and the ability to adapt to different corporate cultures.
Lack of corporate governance in which accountability and outcome accountability are taken into consideration
Lack of development of a compensation system that is appealing in the global society
[Opinions of European companies (manufacturing industry)]
(clarified the position of M&A in growth strategy)
[Opinions of U.S. Companies (technology industry)] (effective DD)
Industry analysis of the target business and development of the financial model of the business plan are carried out while conducting pre due diligence process every time before executing the due diligence process. In addition, simple assessment of human resources and technologies is conducted for making determination at an early stage.
The top executive presents the direction of the strategy. The head of the business division must consider the possible responses to any change in the business environment in light of the strategy presented by the top executive. With the direction of business being clarified, the research and development department constantly assesses possible new technologies which may become necessary in the future,
[Opinions of foreign investment funds]
(ability to communicate missions and visions)
[Opinions raised at the round-table discussions held for Japanese representatives (in the U.S.)]
(difference in the compensation system)
Clear missions and visions serve as the basis for discussion, thereby facilitating future discussions. Many Japanese get turned off by missions and visions; this is particularly salient in the case of spin-out of large-scale companies. In order to make such missions or visions realistic, communication with the leadership is important.
The concept of compensation is radically different between Japan and the United States. Major challenges are the specific way to have the local company as well as the head office in Japan understand such difference and the managers’ low compensations in Japan. We are exploring the best way by changing the system every year.

4. (Reference) Preparation for Global Management Capability and System
In cross-border M&A, it is necessary to manage overseas companies that have different languages, cultures, and business practices and systems. Thus, it is essential to have the global management capabilities and the ability to respond to the global management systems that are adopted and taken for granted by many global companies.
Global
management
capability
system
Communication Skills
Language
Skills
Adaptability
(corporate culture)
Corporate Governance
Compensation
and Incentives
Ability to clearly communicate one’s own strong points, strategy and visions to the purchased company
Persuasive communication ability with clear background and reasons
Language ability to communicate in English or local languages
Know-how to assess different corporate cultures
Ability to disseminate one’s own corporate culture
Execution ability to realize integration and fusion between different corporate cultures
Disciplined management system based on accountability and outcome accountability
Transparent financial management and information disclosure system
Compensation system attractive and appealing to globally competent human resources

5. Development of system for M&A
(Reference) Preparation of a “Framework” for Execution at each stage of the M&A Process
Many overseas companies experienced in M&A have identified key points that should be considered at each stage of M&A strategy, and execution of M&A and PMI, based on their past successes and failures.
Development of system for M&A
Implementation of business DD to determine the compatibility with one’s own strategy
Execution of effective DD based on the checkpoints
Designing the management system after merger from an early stage; prior to conclusion of DA
Clarification and documentation of the position and purpose of M&A in the growth strategy
Periodic assessment of M&A cases
Strategic viewpoint
Financial viewpoint
Consideration of a sale option
Strategy
Consideration
Execution
Integration
Assessment
Formation of in-house dedicated M&A teams and/or teams dedicated to PMI/ divestiture
Systematic organization and sharing of past experience, knowledge and know-how of M&A
Development of personnel and training system for development of human resources for M&A
Selection of target companies based on the compatibility with one’s own strategy and financial standard
Involvement of the responsible person of PMI from an early stage
Visualization through establishment of the monitoring system
Being creative in establishing reporting structure reflecting the management system